In traditional workplaces, differences in salary are common. The question for organizations today revolves around transparency. Can a company be truly transparent without sharing paychecks? Does an open book policy actually pay off in terms of productivity?
In pursuit of answers, HBR researchers asked a group of about 2,000 employees to guess their managers’ salaries. They found that employees underestimated their manager’s salary by 14%. Researchers then told half of the respondents the correct salary, while the other half were left in the dark. They compared the behavior of these two groups of employees.
Researchers measured timestamp, email and sales data.
Employees who knew their superiors’ salaries outperformed those who didn’t
As it turns out, employees who knew their superiors’ salaries outperformed those who didn’t. They spent 1.5% more hours in the office, sent 1.3% more emails and sold 1.1% more units.
Effects were significantly stronger, however, for those employees who were five promotions or less away from their superior. Amongst this group, employees worked 4.3% more hours, sent 1.85% more emails and sold 4.4% more units.
On the flip side, horizontal pay inequality (i.e. a peer in the same role earning more) was a tougher pill to swallow. Employees who learned of peers earning more performed worse than those who were unaware of pay inequality.
Should you implement salary transparency?
Researchers concluded that knowing salaries of superiors within reach can optimize performance amongst employees. They attribute this result to aspiration and ambition; knowing what’s possible a few years down the road can inspire great work. However, when employees fall several rungs lower on the ladder, learning a superior’s salary has the opposite effect.
Rather than implementing salary transparency across the board, survey your team about what they want. Are they interested in their potential salary five years out? Do they want to know more about pay two or three levels above them?
Once you understand their interest, provide them with that information only. As research shows, too much transparency can backfire!